WB Projects Nepal’s Growth to Slow to 2.1% in FY26 amid Political Transition

Nepal’s economic growth is expected to slow sharply to 2.1 percent in the current fiscal year, 2025/26, from 4.6 percent in FY 2024/25, reflecting the effects of public unrest and political instability following the September 2025 protests, the World Bank said in its latest update released Thursday, November 13.

According to the Nepal Development Update: Reforms to Accelerate Public Investment, the slowdown will be most pronounced in the services sector, which is projected to face significant disruptions due to weakened investor sentiment and policy uncertainty.

The World Bank said progress in reconstruction efforts and a smooth political transition could pave the way for a rebound to 4.7 percent growth in FY 2026/27, but cautioned that the outlook remains highly uncertain.

“On the upside, a successful political transition and sustained sound economic management could strengthen investor sentiment supporting a stronger economic recovery,” the report noted. “On the downside, continued uncertainty could weaken investor sentiment.”

“To restore business confidence and accelerate recovery, the government has launched an Integrated Business Recovery Plan, offering grants, tax incentives, and operational support,” the statement quoted Finance Minister Rameshore Khanal as saying. “Public resources have been reprioritized toward infrastructure rehabilitation and election preparations, and a Reconstruction Fund has been established to help restore damaged public and private assets. These initiatives aim to reinvigorate private sector activity while laying the foundation for a more resilient economy.”

Beyond short-term recovery, the World Bank called for stronger public investment management to sustain long-term growth. The report said Nepal’s total capital spending across all levels of government reached 7.9 percent of GDP in FY 2023/24, far below the 10–15 percent needed annually to meet the country’s infrastructure demands.

“Boosting public investment is critical for improving growth, creating jobs, and building prosperity for Nepalis,” the statement quoted David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka, as saying. “This requires implementing key reforms including strengthening project planning and budgeting, streamlining land acquisition and tree-cutting processes, improving cash management efficiency, and amending procurement laws and regulations to speed up project delivery.”